Working Paper 12/293 - abstract

Teacher wages are commonly subject to centralised wage bargaining. This results in flat teacher wages across heterogeneous labour markets and means teacher wages will be relatively lower where local labour market wages are high. The implication is that teacher output will be lower in high outside wage areas. This paper investigates whether this relationship between local labour market wages and school performance exists. We exploit the centralised wage regulation of teachers in England using data on over 3000 schools containing around 200,000 teachers who educate around half a million children per year. We find that regulation decreases educational output. Schools add less value to their pupils in areas where the outside option for teachers is higher. This is not offset by gains in lower outside wage areas.